"The history of Eureka lies in its future." - Lambert Molinelli, 1878


The author/editor of the Eureka Miner owns common shares of local mining stocks, General Moly (GMO) and Newmont Mining (NEM); together with benchmark miner Freeport-McMoRan (FCX). Please do your own research, markets can turn on you faster than a feral cat.

Tuesday, March 2, 2010

The Colonel's Outlook for March

Morning Miners!

It is 6:03 AM. Let the ole Colonel pour you a cup and let's look into the crystal ball for March. In the big picture, fears about Greece are beginning to subside (again), Chilean copper mines are up and running and oil is pushing $80. Gold is seeing a nice pop today on the London spot market and all is well (for now).

Of course some new twist on the sovereign debt crisis or a bad jobs report Friday could send everything falling back to the lower levels of the mine (again). I think we are in for a fairly volatile year if the first two months are any indication. Commenting on the U.S. economy yesterday, billionaire investor Warren Buffet said with a wry smile, "Things are slightly better." (CNBC Business News, 3/01/2010)

My hero Dennis Gartman, "The Commodity King", had this to say about gold:

"Gold is weak in U.S. dollar terms, but it is a good deal stronger in Euro, Sterling and Swiss franc terms," said market newsletter writer Dennis Gartman. He said trade will be volatile in dollar trading because of wider concerns about the market recovery and debt in Europe. (WSJ, 3/02/2010)

In the Report outlook for February, the ole Colonel picked $1120/oz as a nominal price for the month. February closed very near this level but witnessed a scary intraday dive to $1044 on 2/05. Volatile, pardner. I think I can count as many reasons for gold to rise as fall so the Report will maintain $1120/oz as a nominal price for March. This is close to its 1-year, 3-year and 5-year trend lines. Gold really needs to sort out what its role will be in the coming months - a fellow traveler with the metals and oil or safe haven play for investors fleeing the commodity space. If gold and oil re-establish an inverse relation (on average) we may be headed for some tough times. I'm riding point on this one buckaroos.

My updated commodity models for the month of March for silver, copper and oil assuming $1120/oz gold are:

The fair value of silver is $17.184 in a range of $15.944 to $18.423

The fair value of copper is $3.2170 in a range of $2.9363 to $3.4977

The fair value of oil is $76.55 in a range of $70.33 to $82.77

Given this morning's COMEX price of $16.690, silver has a little giddy-up go but remains undervalued with respect to gold. Silver malaise began last November when we asked the question, Why is Silver So Cheap?. There appears to be new money flowing silver's way and it remains relatively cheap if you are in the gold-is-headed-higher camp.

Copper is overvalued with respect to gold at $3.3575 and came very close to its $3.4977 upper limit right after the Chilean earthquake. The $3.50 point is a very tough level of resistance for this metal and it will no doubt head a bit south now that the Chilean mines are back online. A recent reduction in the London Metal Exchange (LME) inventories is positive sign for copper price.

Oil appears to have less resistance for going up than down lately. At $79.34 this morning it sits above "fair value" with the yeller stuff and will no doubt break $80 again absent any bleak news on global recovery.

Molybdenum appears to be on an upward trajectory with a slowly recovering U.S. steel industry, an uptick in European stainless steel demand and successful launch on the LME last week.

Latest Molybdenum News

"US steel production, capability utilization still rising - According to American Iron and Steel Institute (AISI) data, domestic steelmakers operated with a capability utilization rate of 69% for the week ended February 27, producing nearly 1.7m short tons - up about 0.5% from the week before." (Steel Business Briefing, 3/01/2010)

Below is a wrap up of molybdenum Monday (3/1) price action. The 3-month LME futures contract broke $19/lb continuing its upward trend:

Western Moly Oxide (FeMo65) $17.50/lb (the price reported by Infomine and tracked by Base Metals on the General Moly Website)

Moly Oxide, Europe (Mo Drummed Molydbic Oxide EU) $17.42/lb (the price reported in the Metals Bulletin)

LME Futures Contracts

3-Month (Buyer) $40,000/metric ton $18.14/lb
3-Month (Seller)$42,000/metric ton $19.05/lb
15-Month (Buyer) $39,500/metric ton $17.92/lb
15-Month (Seller)$41,500/metric ton $18.82/lb

Here is the price action of the LME 3-month contract (seller) from last Monday's launch:

Enough talk, let's walk the walk:

4-WD is OFF - the VIX or "fear index" is below 25, improving broader markets are expected; metals & miners have a smoother road with FCX above $74 (what is this?)

The GREEN light has returned on our fuel gauge with oil just below $80

An ORANGE light is ON for possible adverse regulation/legislation: Miner's claim fee, Miner taxation, Cortez Hills & mercury emissions

Otherwise, all lights are green on the Eureka Outlook Dashboard (upper right, what's this?)

NYMEX/COMEX: Oil is up $0.64 in early trading to $79.34 (April contract, most active); Gold is up $5.2 to $1123.5 (April contract, most active); Silver is up $0.221 to $16.690 (May contract); Copper is up $$0.0075 to $3.3575 (May contract); Western Molybdenum Oxide is steady at $17.50

The DOW is up 35.59 points to 10439.38; the S&P 500 is up 5.84 1121.55. The miners are rocking today:

Barrick (ABX) $39.35 up 2.34%
Newmont (NEM) $51.23 up 1.89%
US Gold UXG) $2.82 up 2.17%
General Moly (Eureka Moly, LLC) (GMO) $2.55 up 2.00%
Thompson Creek (TC) $14.50 up 1.68%
Freeport-McMoRan (FCX) $76.92 up 0.61% (a bellwether mining stock spanning gold, copper & molybdenum)

The Steels are pouring metal, (a "tell" for General Moly & Thompson Creek):

ArcelorMittal (MT) $39.27 up 2.45% - global steel producer
POSCO (PKX) $117.65 up 0.79% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is up 1.53% to $1,296,878.64 (what is this?).


Colonel Possum

Headline photograph by Mariana Titus

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